uae-reduces-penalties-on-vat-excise-tax
  • 16 Jun 2021

UAE Reduces Penalties on VAT and Excise TAX

New Cabinet Decision No 49 of 2021

In order to help organizations and people better cope with the impact of the Covid-19 pandemic, the UAE has reduced old penalties on value-added tax (VAT) and excise tax. The new Cabinet Decision No 49 of 2021 was issued on 28th April 2021 which amends Cabinet Decision No 40 of 2017 on Administrative Penalties for violations of TAX Laws in the UAE. According to Cabinet Decision No. 49 of 2021, taxpayers who presently have penalties pending can see those diminished to 30 percent, provided they settle them before December 31, 2021.

There are two implications of the New Decision which will be discussed separately:

  1. Amendment to Administrative Penalties
  2. Redetermination of existing Administrative Penalties

Redetermination of Existing Administrative penalties

Conditions to benefit from the Redetermination:

  1. Only Applicable to Administrative Penalties imposed before 28th April 2021
  2. Only Applicable to Administrative Penalties imposed before 28th April 2021
  3. The taxable person should undertake all the following:
    1. Settled all Payable tax before 31st December 2021 and have been received by FTA till 31st. December 2021 (whether payable before or after 28th June 2021)
    2. Settled 30% of the total outstanding administrative penalties imposed before 28th June 2021, no later than 31st December 2021.

If all the above conditions are met the person shall not be required to pay the remaining part (i.e 70%).

Procedures Relating to Redetermination

To facilitate the procedures for registrants, the FTA will link the redetermination process and the relevant data to the registrants’ e-Services accounts. The registrants will be able to view further information relating to the process as of 28 June 2021.

Amendment to Administrative Penalties

As mentioned above as well, Cabinet Decision 49 also amends several administrative penalties laid out in Decision 40 of 2017 and Federal Decree no 7 of 2017. Below you can find the amended penalties

Administrative Penalties Related to Tax Procedures (Federal Decree no. 7 of 2017)

Description of Violation Administrative Penalty (AED)

The failure of the Person conducting Business to keep the required documents and other information specified in the Tax Procedures Law and the Tax Law.: Reduced

 

10,000 for the first time. 20,000 in case of repetition.

The Taxable Person's failure to submit a registration application within the timeframe specified in the Tax Law. Reduced

10,000

Failure of the Registrant to file a deregistration application within the timeframe specified in the Tax Law. *New mechanism

1,000 in case of delay, and on the same date monthly thereafter, up to a maximum of 10,000.

The failure of the Registrant to inform the Authority regarding any situation that requires the amendment of the information about its Tax record kept by Authority. *Reduced

5,000 for the first time. 10,000 in case of repetition.

The failure of the Legal Representative of the Taxable Person to notify the Authority of its appointment as Legal Representative within the stipulated deadline, in which case the Penalties will be due from the Legal Representative’s funds.*Reduced

10,000

The Taxable Person's inability to settle the Payable Tax stated in the submitted Tax Return or Voluntary Disclosure, or the Tax Assessment he was notified of, within the timeframe specified in the Tax Law.*New mechanism

  1. The Taxable Person shall be obliged to pay the penalty applicable to late payment of Payable Tax up to a maximum of 300%, under the following:
    • Where the settlement of Payable Tax is late, 2% of the unpaid tax shall be due on the day following the due date of payment.
    • On the unpaid Tax amount to date, a 4% monthly penalty is due after one month from the due date of payment, and on the same date monthly thereafter.
  2. For this penalty, the due date of payment in the case of the Voluntary Disclosure and Tax Assessment will be as per the following:

    • In the case of a Voluntary Disclosure, 20 business days from the date of submission.
    • In case of a Tax Assessment, you will have 20 business days from the date of receipt.

The submittal of an inaccurate Tax Return by the Registrant. *New mechanism

  1. The fixed penalty will be applied: 1,000 for the first time. 2,000 in case of repetition.
  2. As an exception to Clause 1 of this penalty, if the inaccurate Tax Return results in a Tax difference less than the fixed penalty listed in Clause 1 of this penalty, a penalty equivalent to the Tax difference of at least 500 shall be imposed.
  3. Anyone correcting their Tax Return before the due date of payment will be rejected from the penalty imposed under Clauses 1 and 2 of this penalty.

The submittal of a Voluntary Disclosure by the Person/Taxpayer on mistakes in the Tax Return, Tax Assessment, or refund application under Article 10(1) and 10(2) of the Tax Procedures Law. *New mechanism

Without prejudice to the potential consequences of the penalty mentioned in Clause 10 of this Table, a percentage-based penalty shall be applied on the difference between the Tax that was calculated and that which should have been determined, under the following:

  1. 5% on the difference, where the Voluntary Disclosure is submitted within one year from the due date of submission of the Tax Return, the Tax Assessment, or the relevant refund application;
  2. 10% on the difference, where the Voluntary Disclosure is submitted within the second year following the due date of submission of the Tax Return, the Tax Assessment, or the relevant refund application;
  3. 20% on the distinction, where the Voluntary Disclosure is submitted within the third year following the due date of submission of the Tax Return, the Tax Assessment, or the relevant refund application;
  4. 30% on the distinction, where the Voluntary Disclosure is submitted within the fourth year from the due date of submission of the Tax Return, the Tax Assessment, or the relevant refund application;
  5. 40 percent on the difference, where the Voluntary Disclosure is submitted after the fourth year from the due date of submission of the Tax Return, the Tax Assessment, or the relevant refund application.

The failure of the Person/Taxpayer to voluntarily disclose an error in the Tax Return, Tax Assessment, or refund application according to Article 10 (1) and 10(2) of the Tax Procedures Law before being informed by the Authority that it will be subject to a Tax Audit. *New mechanism

Without prejudice to the potential consequences of the penalty referenced in Clause 10 of this Table, the person will be subject to:

  1. A penalty of 50% on the amount of error.
  2. A penalty of 4 percent for every month or part of the month, of the following:
    1. The unpaid Tax to the Authority, from the date the payment is due for the applicable Tax Period until the date of receipt of the Tax Assessment.
    2. The Tax that was not returned to the Authority because of ineligible refund, from the date of Tax refund until the date of receipt of the Tax Assessment.

The Registrant's failure to calculate Tax on behalf of another person where the Registrant Taxable Person is obliged to do so under the Tax Law. *New mechanism

 

  1. The Registrant shall be obliged to pay the penalty applicable to the late settlement of Payable Tax up to a maximum of 300%, under the following:
    1. here the settlement of Payable Tax is late, 2% of the unpaid tax is due on the day following the due date of payment.
    2. 4% monthly penalty is due following one month from the due date of payment, and on the same date monthly thereafter, on the unsettled Tax amount to date.
  2. For this penalty, the due date of payment in the case of Voluntary Disclosure and Tax Assessment will be as per the following:
    1. In the case of a Voluntary Disclosure, 20 business days from the date of submission.
    2. In case of a Tax Assessment, you will have 20 business days from the date of receipt.

 

Administrative Penalties Related to Tax Procedures (Federal Decree no. 7 of 2017)

The Taxable Person's failure to display prices inclusive of Tax. *Reduced

5,000

The failure of the Taxable Person to give the Authority with the price lists of the Excise Good that it produces, imports, or sells. *Reduced

5,000 for the first time. 10,000 in case of repetition.

Administrative Penalties Related to Value Added Tax (Federal Decree no. 8 of 2017)

The Taxable Person's failure to display prices inclusive of Tax .*Reduced

5,000

The failure of the Taxable Person to issue a Tax Invoice or the alternative document when making any supply. * Amended and reduced

2,500 for each detected case.

The failure of the Taxable Person to issue a Tax Credit Note or the alternative document. * Amended and reduced

2,500 for each detected case.

The failure of the Taxable Person to comply with the conditions and procedures regarding the issuance of a Tax Invoice and a Tax Credit Note electronically. *Amended and reduced

2,500 for each detected case.

The effective date of the latest Cabinet Resolution

The revised resolution will be effective after sixty (60) days from the date of its issuance on 28 April 2021, i.e. effective from 28 June 2021